Catch‐up cycle: A general equilibrium framework

Successful latecomers have certain stylized facts: an inverse U‐shaped GDP and capital per capita growth rates, high growth rates during the catch‐up period, and rapid structural changes. This paper proposes a general equilibrium framework and documents a catch‐up cycle that successful latecomers are likely to experience. Technology adoption or imitation and the diminishing marginal return to capital are the two driving forces of the catch‐up cycle. Technical gap and speed/efficiency of technical catching‐up are two fundamental determinants for successful catching‐up. Market competition, a beneficial financial system for resource allocation and openness are essential factors associated with speed/efficiency of technical catching‐up and thus with successful catching‐up. This paper concludes by a case study of China and sheds light on the different policy choices in various stages of the catch‐up cycle.     

Advancing economic analysis beyond the equilibrium framework

Twentieth century economics was dominated by the development and refinement of the concept of economic equilibrium. While it is worthwhile to understand the properties of economic equilibrium, equilibrium concepts have dominated economic thought to the point that they have obscured some of the more important issues economists have always strived to understand. At least since Adam Smith’s time, economists have tried to understand the causes of prosperity, and how economic welfare can be enhanced, but these issues are best understood outside the equilibrium framework. The foundations provided by the Austrian school point toward ways that economic analysis can expand beyond the equilibrium framework.

Integration effects in the EEC: An attempt at quantification in a general equilibrium framework

This paper presents an attempt at quantitatively examining integration effects in the EEC within a general equilibrium framework. The methodology is based on multinational input-output analysis, where the national interindustry structures of the EEC-countries are linked together via gravitational trade flows. The analysis of trade effects is of the ex post type: Hypothetical trade flows of the customs union's anti-monde are calculated for the years 1965 and 1970 on the assumption that the structural relationships observed in 1959 remained unchanged, and comparison is made with actual trade flows. The results indicate substantial trade creation. There is little trade diversion, and external trade creation, where it occurred, is generally only a small fraction of internal trade creation. Substantial trade creation occurred in Italy, France, and Germany; trade diversion appeared in the Benelux countries. Sectors with high trade creation were agriculture and manufacturing industries, while trade diversion was concentrated in fuels and mining. The results conform with ex ante expectatations based on estimates of pre-union trade resistance.     

In-house information activities in an applied general equilibrium framework

Increasingly, firms' activities consist of information generating and processing activities, and information costs tend to dominate production costs. This indicates the necessity for explicitly incorporating private bureaucracies in economic modelling, if we want to understand economic development. Porat and Rubin's concept of the ‘secondary information sector’, which accounts for non-marketed information services produced in-house, is an attempt to account for and analyse intra-firm information activities at an industry and economy-wide level. The present study extends their work by embedding the sector in a simple computable general equilibrium model, using Japan in 1980 as an illustrative case study. Scenarios modelling changes in sectoral exports and domestic demand are conducted. Advantages and disadvantages of the secondary information sector concept are highlighted and areas for further research are indicated.     

Collateral restrictions and liquidity under-supply: a simple model

We show that very little is needed to create liquidity under-supply in equilibrium. Credit constraints on demand by themselves can cause an under-supply of liquidity, without the uncertainty, intermediation, asymmetric information or complicated international financial framework used in other models in the literature. We show that the under-supply is a non-monotone function of the demand distortion that causes it, a result that may have interesting implications for emerging markets economies. Finally, when we make the credit constraint endogenous, the inefficiency can be large due to the presence of a multiplier. The authors thank the very helpful comments of Andres Velasco, Herbert Scarf and all the participants of the Mathematical Economics Seminar at Yale.     

Efficiency of two sided investments in an equilibrium unemployment framework

This paper investigates the efficiency of investments by firms and workers in a matching model with high- and low-productivity jobs. Search is sector specific and random within sectors. Search frictions and ex-post bargaining imply that wage inequality arises as a result of the difference in investment costs between the sectors. The efficiency properties of the equilibrium are analyzed under the particular division in bargaining proposed by Hosios (1990). The conclusion is that the equilibrium is inefficient, with a too low fraction of workers and a too high vacancy-unemployment ratio in the high-productivity sector. The opposite happens in the low-productivity sector.     

Collateral fluctuations in a monetary economy

This paper studies economy-wide fluctuations that occur endogenously in the presence of monetary and real assets. Using a standard monetary search model, we consider an economy in which agents can increase consumption, over and above what their liquid monetary asset holdings would allow, pledging real assets as collateral for monetary loans. It is shown that, if the liquidation value of real assets is below full market value, a stable cyclical equilibrium can emerge in consumption and capital around the unstable steady state. We also provide conditions for the existence of cycles of higher order, chaos and sunspot equilibria.     

The current status and systematic framework of talent programmes in basic research in China: a system theory perspective

Talent programmes are treated as a strategic foundation for social–economic development in China. With increasing levels of funding for basic research, talent programmes in basic research are becoming more complex. This increased complexity leads to inefficiencies because it is difficult to coordinate and manage these talent programmes effectively. This paper reports a survey of talent programmes in basic research in China. The results show that talent programmes in basic research have not yet formed an integrated system and that there exist some weaknesses in integration, structure, hierarchy and chronological order. Based on these conclusions, this paper proposes a framework for the talent programme system in basic research using system theory. Furthermore, measures to address weaknesses in the existing talent programme system are provided and analysed according to China's national talent strategy. These measures should be helpful for promoting the operation of talent programmes and optimising their overall performance.     

Collateral,labour monitoring and banking accelerator

This paper derives the determination of external finance premium (EFP ) in the context of banking sector profit maximisation behaviour. EFP/credit spread stems from the managerial cost, associated with the intermediation process, of factor payments to collateral and labour services. The stake of entrepreneurs is relevant to determine the EFP on two grounds: (a) the ratio of entrepreneurial net wealth to collateral value influences the total managerial cost; and (b) entrepreneurs' net worth (fraction of total collateral) helps mitigate the EFP from extracting rebate from collateral service. Based on these, we can derive an observationally similar relationship between EFP and entrepreneurial leverage, as in previous studies. This provides a rationale for us to understand the financial friction from a novel perspective. Besides the leverage ratio, the EFP is shown to be determined also by the resource cost of financial intermediation, for which the model generates a mechanism that contains broader ingredients in determining the behaviour of EFP .     

Reputation,control rights and game equilibrium -A game analytical framework and application to SOEs in China

Using the reputation model of Kreps (1982), Vickers (1986) and Barro(1986), we develop a dynamic game model with incomplete information to examine the relations between the managers of state-owned enterprises(SOEs) in China and the government as the enterprise’s owner. Employing the model, we show that even a noncoopertive manager will not intrude the owner’s interests until the last period of his term in order to maximize his long term utility. The paper also discusses some phenomenona in state-owned enterprises in China, such as “insiders’ control”, “59 phenomenon” and excess on-the-job consumption.     

A general equilibrium framework for the affine class of term structure models

The Duffie and Kan (1966) model, which can be considered as the most general affine term structure formulation, was originally specified in terms of risk-adjusted stochastic processes for its state variables. The goal of the present paper is to derive a Duffie and Kan (1966) model specification under the physical probability measure that is compatible with the formulation given by the authors under the equivalent martingale (money market account) measure. For that purpose, the Duffie and Kan (1966) model will be fitted into a general equilibrium monetary framework. The resulting analytical solution for the vector of factor risk premiums enables the econometric estimation of the model parameters using a time-series or a panel-data approach, and nests, as special cases, several other specifications already proposed in the literature.Received: November 2002, Accepted: February 2004, JEL Classification: E43, G11, G12Financial support by FCTs research grant PRAXISXXI/BD/5712/95 is gratefully acknowledged.     

Internal and external exchange rate equilibrium in a cointegration framework. An application to the Spanish peseta

A simple cointegration methodology is used to compute the equilibrium real exchange rate for the peseta. The stock of foreign assets and the evolution of sectoral prices are considered to be the fundamentals for the real exchange rate. After testing for cointegration, we proceed to decompose the series into a permanent and a transitory component, following the method devised by Gonzalo and Granger. The permanent component of the real exchange rate corresponds to its (time-varying) equilibrium value, and the deviation of the actual real exchange rate from this equilibrium value gives an estimation of the degree of misalignment of the real exchange rate. By the end of the sample (1998:1), the peseta is estimated to be undervalued around 6%.     

Collateral secured loans in a monetary economy

This paper presents a microfounded model of money where durable assets serve as a guarantee to repay consumption loans. We study a steady state equilibrium where money and credit coexist. In such an equilibrium, a larger investment in durable capital relaxes the borrowing constraint faced by consumers. We show that the occurrence of over-investment and the behavior of capital accumulation depend on the rate of inflation, the relative risk aversion of agents and the marginal productivity of the capital goods.     

Innovation, competition, and growth: Schumpeterian ideas within a Hicksian framework

Schumpeter’s ideas, which should be the basis of any evolutionary approach to the relations between innovation, competition and growth, are revisited and interpreted within the analytical framework proposed by Hicks in Capital and Time. Two main results emerge. First, the introduction of any new technology may lead to higher unemployment and reduced productivity; only an active monetary (and banking policy) will allow the economy to capture productivity gains. Second, within an industry confronted by recurrent technological changes, certain monopoly practices may be needed for this industry to converge towards an efficient market structure determined by the content of technology and the profile of demand. These results suggest some reconsideration of the macroeconomic and industrial or competition policies designed, in Europe, to cope with both technical change and globalization in modern economies.     

Carbon leakages: a general equilibrium view

The effectiveness of unilateral action to curb carbon emissions has been dismissed because of possible “carbon leakages”, this referring to the rise of emissions in non-participating countries. This paper offers a general equilibrium (GE) exploration of the key mechanisms and factors underlying the size of carbon leakages. We developed a two-region, two-goods simplified GE framework, incorporating three types of fossil fuels (coal, oil and low-carbon energy), international trade and capital mobility. The model was designed to make tractable extensive multidimensional sensitivity analysis. The results suggest that the coal supply elasticity plays a critical role, while substitution elasticities between traded goods and international capital mobility appear relatively less influential. The shape of the production function also matters for the size of the leakages. Confirming the results obtained with large computable GE models, for a wide range of parameters’ values, carbon leakages appear to be small. Therefore, the argument that unilateral carbon abatement action taken by a large group of countries (such as the Annex 1 group) is flawed by significant carbon leakages is not supported by our sensitivity analysis. The likelihood of small leakages favours in fact the formation of a worldwide coalition to stabilise climate change.     

Climate policy vs. agricultural productivity shocks in a dynamic computable general equilibrium (CGE) modeling framework: The case of a developing economy

The main objective of this paper is to compare the cost of climate policy consistent with the 2 °C global warming target (Paris Agreement target) with the cost of climate change induced agricultural productivity shocks, using a recursive dynamic CGE model for India. The social cost of carbon, in terms of loss in agriculture sector, is estimated to be about 2 percent of GDP, at zero rate of discount, under conservative forecasts of fall in agricultural productivity. In comparison, the cost of climate policy consistent with the Paris Agreement target of 2 °C is about 1 percent of GDP. Thus, there is a strong case for the adoption of ambitious climate policy in India, provided other countries also adhere to the same. Besides, revenues generated from the carbon tax and emission allowance could be a means to support the development and adoption of new energy and agricultural technologies, to increase social sector expenditure and to reduce abatement costs.     

Excess demand functions, equilibrium prices, and existence of equilibrium

Summary. For continuous aggregate excess demand functions of economies, the existing literature (e.g. Sonnenschein (1972, 1973), Mantel (1974), Debreu (1974), Mas-Colell (1977), etc.) achieves a complete characterization only when the functions are defined on special subsets of positive prices. In this paper, we allow the functions to be defined on a larger class of price sets, (allowing, for example the closed unit simplex, including its boundary). Besides characterizing excess demands for a larger class of economies, our extension provides a useful tool for proving other results. It allows us to characterize the equilibrium price set for a larger class of economies. It also permits extending Uzawa's observation (1962), by showing that Brouwer's Fixed-Point Theorem is implied by the Arrow-Debreu Equilibrium Existence Theorem (1954, Theorem I). Received: October 18, 1995; revised version June 28, 1996     

Marshall on equilibrium and time: a reconstruction

This paper's aim is to offer a reconstruction of the Marshallian conception of equilibrium and time. Its main features are as follows. First, I argue that the hallmark of this conception is to posit an interrelationship between two equilibrium concepts — market-day and normal equilibrium. I claim that they are part and parcel and cannot be analysed separately. Second, my reconstruction gives a central role to the market period. Third, I argue that the so-called short and long-period equilibrium concepts refer to the same unique concept of normal equilibrium. Fourth, I argue that Marshall’s value theory admits the effective existence of disequilibrium states. A Marshallian disequilibrium refers to cases where market-day and normal values fail to coincide, this state of affairs going along, however, with market clearing. I also propose an alternative interpretation of Marshall's corn model wherein perfect information is considered the linchpin of achieving equilibrium. Finally, I argue that my reconstruction avoids a series of interpretative pitfalls.